In the spotlight: C&C Group
The dramatic rise of Magners cider was perhaps the biggest brand marketing success story in the UK drinks market in recent years. But, Chris Brook-Carter writes, bad weather and heightened competition from a larger player keen to gain a share of the all-new premium cider category have resulted in an equally dramatic reversal of fortune for brandowner C&C Group.
How does a brand go from hero to villain in the space of 12 months? Just ask Irish drinks group C&C.
Its cider brand Magners was heralded as one of the industry's biggest success stories of recent times, credited with reviving the fortunes of the cider sector in the UK, which for many years has had little to cheer about.
But this week, the troubled Irish drinks group posted a 39% drop in basic adjusted earnings per share of 17.5 euro cents (US$0.24). Operating profit dropped 33%, as rising costs and flat sales hit it hard. The news comes on the heels of a couple of profit warnings earlier in the year.
Shares in the company fell by nearly 11% after it said it expects cider revenues to decline in the high single-digit percentage range in the second half of the year. And this comes on the back of a stock market performance that has seen shares in the company more than halve over the past six months.
C&C's CEO Maurice Pratt said: "The financial performance reflects a number of factors such as exceptionally poor summer weather, increased competition, and additional costs in marketing and cider manufacturing capacity."
Of course, no one can blame C&C for the poor weather, but the fear is that the absence of the natural conditions in 2007 that made Magners such a hit in 2006 - namely plenty of hot weather - have stalled consumer interest in the brand.
C&C said in its own research that the premium cider category is now a firmly established part the UK drinks market, and the group says it is confident that the sector has good growth prospects. However, the lager and ale sectors it competes with are so ingrained that the loss of momentum seen this summer could still have serious implications.
On top of this, C&C has been hit by the increased competition in the sector, particularly from the S&N brand Bulmers. So, worryingly for the group, even if it proves that premium cider over ice is here to stay, there will remain question-marks over whether C&C can maintain market share and, importantly, avoid a costly price war with a company whose distribution muscle packs far greater punch.
The next couple of months then are going to prove crucial for C&C and its CEO Maurice Pratt. As revealed by just-drinks earlier in the week, the company is to continue test marketing Magners in Munich and Barcelona. Pratt said that the conclusion from the test is that there is a consumer opportunity in both Spain and Germany "but significant challenges to its realisation". C&C now plans to remain in both markets and formulate a revised approach, in light of results to date for 2008/09.
But for the time being the focus of the company - and its investors - is going to remain firmly on putting things right in the UK.
Pratt said: "C&C has conducted an extensive review of its performance and market position and has taken certain corrective steps which will extend in the coming months to a broader series of measures to sharpen its competitive capability and to implement a comprehensive restructuring and cost reduction programme. These measures are intended to restore growth in revenue and operating margin in 2008/09 and beyond."
No further details of this plan were forthcoming this week but Pratt added that following internal consultation, details of the cost reduction, anticipated savings and the resulting exceptional charge to be taken in the year ending 28 February 2008, will be announced by the end of November 2007.
C&C says its principal focus will be on driving growth in the UK through consumer marketing while at the same time implementing a range of measures to enhance its competitive position.
If it succeeds it will be no mean feat. S&N has deliberately looked to take market share from Magners with its Bulmers brand, aggressively pushing it through its strong on-trade distribution network and under-cutting it on price. S&N has plans to launch a premium pear cider in the UK now too, so competition will only get tougher.
That said, Magners still has strong brand awareness in the UK that can be leveraged and if the sun smiles those at C&C may once again too.
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